Abstract

Biotechnology is one of the most intensive industries in the past few decades. Essence of
their operations leads to problem of determining the value of biotechnology companies,
because in addition to their existing value, future product, market opportunities and
intangible assets are difficult to value. Biotech companies don’t have a standard
format, and simple techniques, such as financial statements analysis or discounted
cash flows cannot be applied. Due to the complexity of their work and high levels
of risk, alternative method such as real options is applied. The concept of financial
options can be extended to the valuation of investment opportunities in commercial
companies, especially in biotech. This paper explains how real options provide various
perspectives on the project (investment) value in relation to situations in which the
project is: delayed, expanded, abandoned, business is contracted, operations are
switched, products with multiple applications are grown, and optimal date for the
product launch is determined.